East African budget highlights 2013/14

The budget process

The budget process in the East African Community (EAC) region is always an eye-catching affair. In accordance with the EAC Treaty, all five partner states present their budget statements simultaneously. Those who can leverage support for additional resources. A case in point is Kenya where a number of protests have taken place among public sector workers.

The 2013/14 budget process was particularly notable as many East African countries are encountering challenges that have not been as prominent previously. For example, in Rwanda and Uganda, the ‘aid’ component has dwindled significantly putting strain on governments to raise the deficit. In Kenya, the implementation of the Constitution and the devolved system of government is expected to account for a significant part of government expenditure.

Key highlights

The EAC Regional Budget, which is made up of individual EAC partner state contributions, continues to be majority funded by development partners. This puts at risk the manoeuvrability of EAC on priority development projects.

Kenya’s budget is the largest in the region at US$18.6 billion, followed by Tanzania at US$11.1 billion. Uganda and Rwanda budgets are US$4.6 billion and US$2.5 billion respectively.

Rwanda and Uganda both presented budgets with reduced ‘aid’ components following recent withdrawal of international donor assistance to these countries. This has placed significant pressure on fiscal policy and budget management for these countries.

Kenya presented its first budget under the new system of government and newly elected government. The budget presented has a 300 billion Kenya shilling deficit that is expected to be financed through a raft of tax increases that will further increase the pressure already on people’s incomes.

Tanzania presented an increased budget for the fiscal year 2013/14 with emphasis on the infrastructure and extractive sectors. The Minister of Finance introduced a number of taxes to finance the increasing deficit.

The EAC region as whole has seen budget allocations increase across the board with a common emphasis on the infrastructure and extractive sectors. In addition, the region seems to be leaning towards running deficits to finance both recurrent and development expenditures.

The burden of financing expenditure

The 2013/14 budgets presented to the various houses of parliament in the region suggested two broad things:

financing expenditure in the coming fiscal year will be difficult

the burden of financing expenditure will fall squarely on the citizens in the region.

In Rwanda and Uganda, the budgets presented lacked significant aid components that had been all too familiar in the past. Furthermore, in Kenya, the budget developed and presented was not only the first for the newly elected government, but it was also the first under the new devolved systems of government as per the new Constitution. In Tanzania there have been a number of taxes introduced to finance the infrastructure focused budget.

A salient feature of the budgets presented by the EAC partner states for the fiscal year 2013/14 is that they are all running significant deficits. While this may sound like old news, it is concerning that the pressure to cover this deficit is being passed over to citizens who already face high costs of living. For example, in Uganda, a number of newly introduced taxes will have a significant impact on how much Ugandans pay for goods and services. In Kenya, the government has also introduced several new taxes that will see consumers pay higher prices. The increase in taxes, while being deemed necessary to finance deficits and development projects in the region, runs the risk of making individual countries and the region as a whole less attractive for business and investment.

The effect on the poor

It is important to understand, in particular, what this means for the poor in each of these countries. With the cost of goods and services increasing through this fiscal year, there is no doubt that the poor will be adversely affected. The budgets presented in mid-June make brave attempts to shield the poor with a myriad of social protection schemes. However, much of the financing of these schemes is coming from the pockets of the poor, the supposed recipients. The budgets presented do not offer immediate short term respite for the poor in the region, but the foundations for a more equitable and available form of social protection are being laid. This is certainly the case in Kenya where some initiatives in the budget suggest a move towards gender specific, marginalised groups and maternal sectors.

Balancing the development agenda

Beyond the balancing act that is required to ensure there is not undue pressure on fiscal policy and management, Development Initiatives have additional concerns about the budgets:

the widening deficit – not only at national level, but also regional level

increased taxation on citizens and industries which potentially threaten the competitiveness of the region

the bulging cost of the recurrent budget and resulting implications on development budgets

the increasing emphasis on the extractive sectors at the expense of more traditional sectors such as agriculture and industry.

On a more positive note, Development Initiatives sees the emphasis on improving infrastructure at the national and regional level as a positive step towards enhancing trade and investment potential. At regional level, there is a lot to be said for the budget statement that was presented in advance of those of the partner states.

The most prominent story coming out of the budget is that over 80% of it is financed by donors, with most of this directed towards development projects. The obvious challenge the EAC secretariat faces is how to push its own development agenda when funds are coming from external sources. This a dilemma that needs to be addressed by national partner state governments to safeguard against the risk of the regional integration agenda ceasing to be home-grown. In terms of harmonisation and coordination with partner state budget priorities, it would appear that the 2013/14 EAC budget seems to be more aligned than in previous years.

We can summarise the 2013/14 budget statements using the proverbial saying: “the more things appear to change, the more they stay the same.” The cost of living has gone up, as have taxes. Deficits are increasing, and the conversation is all about oil and natural resources. In all of this, we must not lose sight of the fact that the situation of the poor and vulnerable in the region is not really improving and could potentially get worse.